Billionaire Busted for Sex, Drugs and Fraud

Henry T. Nicholas III made a fortune cofounding the Orange Country-based technology company, Broadcom, and then used his money to give “party favors” like ecstasy and cocaine to business associates, sometimes without their knowledge. Nicholas had a secret den built under his house and hosted debauched parties there that not even his wife knew about.

Nicholas, with other Broadcom executives, also faces indictment for charges of stock fraud at the company. The Securities and Exchange Commission claims that Nicholas and his confederates were trying to “fraudulently backdate stock option grants, failing to record billions of dollars of compensation expenses and falsifying documents to further the fraud.”

Former Broadcom executive and founder Henry T. Nicholas III was escorted out of his home by the FBI yesterday morning (Thursday, June 5). There were two indictments that led to Nicholas’s arrest. The first accuses Nicholas “of doling out drugs and prostitutes as part of a freewheeling lifestyle.” Not only is he accused of using narcotics himself, he allegedly maintained several properties with areas set aside for entertaining associates with drugs and prostitutes. One count of the indictment alleges that he slipped MDMA (ecstasy) into his guests’ drinks without their knowledge. A second indictment, first announced by the Securities and Exchange Commission in May, stated that he, and other executives at Broadcom, backdated stock options and committed fraud.

Nicholas’s lawyer, Gregory Craig, was prepared to deal with the fraud charges, but allegations of drug use and consorting with prostitutes were a surprise. “It’s a kitchen-sink attack on Dr. Nicholas. They’re trying to throw everything at him from eight years ago,” he said. For his part, U.S. Magistrate Judge Arthur Nakazato worried that bail he set ($3.3 million) was too low for the wealthy Nicholas and warned, “If you flee, I will detain you and I will order an arrest warrant and I’ll have the marshals and the FBI going on a hunt for you—and when they bring you back, I’m not going to show much mercy.”

In May 2008, Nicholas was charged, along with three other Broadcom executives, with concocting a scheme to “fraudulently backdate stock option grants, failing to record billions of dollars of compensation expenses and falsifying documents to further the fraud.” The Securities and Exchange Commission provides details of their complaint against Nicholas and his colleagues.

Nicholas was accused in 2002 of failing to pay the construction workers who built him an underground den allegedly used to take drugs and have sex with prostitutes. The construction crew did millions of dollars worth of work on his house between 1998 and 2002 for which they claim they were not paid. They also stated that Nicholas used “manipulation, lies, intimidation, and even death threats” to prevent any member of the crew from quitting. Nicholas’s lawyer denies all allegations, but a settlement was reached out of court.